Birla offers to give up stake in Vodafone Idea

In a last-ditch effort to save Vodafone Idea, Kumar Mangalam Birla has offered to hand over his shareholding in the company to the government in exchange for a bailout package that would keep the company afloat.

“I am more than willing to hand over my stake in the company to any entity — public sector/government/domestic financial entity — that the Government may consider worthy of keeping the company going,” Birla said in a letter addressed to Rajiv Gauba, Cabinet Secretary of India.

In return, Birla asked for three things — clarity on adjusted gross revenue (AGR) liability, a moratorium on spectrum payments and a floor price on tariffs to prevent predatory pricing from competitors.

Reeling under debt

Birla who owns about 27 per cent stake in the telecom company has been pushed to a corner with the business struggling under a massive debt of nearly ₹1.8-lakh crore and a cash balance of only ₹350 crore. His stake is valued at around ₹6,600 crore as per the company’s current share price, but the group has invested over ₹12,200 crore into the telecom business over the last 20 years. Birla also has indirect control over Vodafone Plc’s 44 per cent in the joint venture company. The UK-based Vodafone Plc has written off nearly $12 billion in various phases, on account of its Indian investments, both in Vodafone India and after its merger with Idea Cellular.

Vodafone Idea has been trying to raise funds from investors over the last year but has not been able to close a deal. Birla said foreign investors are keen to partner with Vodafone Idea but want to see a clear government intent to have a three-player telecom market. “With the absence of definitive steps on the three key issues of concern for Vodafone Idea by the government, potential investors have been hesitant to invest,” Birla said in the letter.

Without fresh investments, the company has also not been able to invest in future network roll-outs. In comparison, its competitors Reliance Jio and Airtel have been investing billions in setting up mobile broadband networks.

What they say

R Chandrashekhar, former President of Nasscom and former Secretary of Department of Telecommunication, said that Birla’s letter is largely a symbolic move. “I think what they are trying to signal here is that they have done everything they could to bail themselves out of this situation to no avail. As a utility company, 27 crore subscribers will be left high and dry if the company folds overnight. Thus, they are asking for government assistance to avert such an eventuality and script an alternative end game with minimal public upheaval,” Chandrashekhar told BusinessLine .

Some analysts have proposed that the telecom company should be nationalized by converting debt into equity. Vodafone Idea owes about ₹1.2 lakh crore to the Government.

But Sanjay Kapoor, former CEO, Bharti Airtel, said this was unlikely to happen. “With the government's current track record and experience of running the 2 public sector telecom service providers, it may be a non-option for the Government to consider the purchase of a private sector operator.”

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